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Assam HS Skill Subject Accountancy and Auditing study materials
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Assam HS Skill Subject Accountancy and Auditing practice questions

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Question 1Fundamentals and Theoretical Framework of Accounting

A firm prepares its financial statements on the assumption that it will continue in business for the foreseeable future. Which accounting concept is being applied?

  1. Going concern concept Correct answer.
  2. Money measurement concept
  3. Realisation concept
  4. Consistency concept

Explanation

The going concern concept assumes that the business will continue operating for the foreseeable future, so assets are not valued at break-up or liquidation values in the normal course. This assumption supports the preparation of financial statements on a historical-cost basis rather than on a winding-up basis.

Question 2Fundamentals and Theoretical Framework of Accounting

The proprietor of a stationery business uses ₹30,000 of the firm's cash to pay his personal house rent. Under the business entity concept, this amount should be recorded as:

  1. Capital introduced
  2. Rent expense of the business
  3. A business liability
  4. Drawings Correct answer.

Explanation

The business entity concept treats the proprietor and the business as separate accounting entities. Cash taken from the firm for the proprietor's personal use is therefore recorded as drawings, not as a business expense or liability.

Question 3Fundamentals and Theoretical Framework of Accounting

A firm has total assets of ₹9,00,000 and external liabilities of ₹3,50,000. Using the accounting equation, its owner's equity is:

  1. ₹5,50,000 Correct answer.
  2. ₹3,50,000
  3. ₹9,00,000
  4. ₹12,50,000

Explanation

The accounting equation is Assets = Liabilities + Owner's Equity. Rearranging it gives equity of ₹9,00,000 − ₹3,50,000 = ₹5,50,000, which is the owner's claim on the firm's assets.

Question 4Fundamentals and Theoretical Framework of Accounting

During the year a trader had opening stock of ₹80,000, purchases of ₹4,20,000 and closing stock of ₹60,000. Under the matching concept, the cost of goods sold to be matched against sales is:

  1. ₹4,60,000
  2. ₹5,00,000
  3. ₹4,20,000
  4. ₹4,40,000 Correct answer.

Explanation

The matching concept requires the cost of goods sold to be matched against the sales revenue of the same period. Cost of goods sold is opening stock plus purchases minus closing stock: ₹80,000 + ₹4,20,000 − ₹60,000 = ₹4,40,000.

Question 5Fundamentals and Theoretical Framework of Accounting

A company switches from the straight-line method to the written-down value method of depreciation and back again every year. Which accounting concept is most directly violated?

  1. Going concern
  2. Prudence
  3. Dual aspect
  4. Consistency Correct answer.

Explanation

The consistency concept requires a firm to apply the same accounting policies and methods from one period to the next unless a change is justified. Repeatedly switching depreciation methods makes results non-comparable and violates consistency.

Question 6Fundamentals and Theoretical Framework of Accounting

At year-end, a trader's closing stock has a cost of ₹90,000 and a net realisable value of ₹75,000. Applying the prudence concept, the closing stock should be valued at:

  1. ₹1,65,000
  2. ₹82,500
  3. ₹75,000 Correct answer.
  4. ₹90,000

Explanation

The prudence concept requires stock to be valued at the lower of cost and net realisable value. Since net realisable value ₹75,000 is below cost ₹90,000, the closing stock is shown at ₹75,000 and the loss is recognised promptly.

Question 7Fundamentals and Theoretical Framework of Accounting

Which of the following errors will leave the trial balance in agreement?

  1. Only the debit side of a ₹5,000 transaction is posted
  2. A ledger account balance is wrongly totalled by ₹1,000
  3. The sales book is undercast by ₹2,000
  4. A credit sale of ₹8,000 is not recorded at all Correct answer.

Explanation

A complete omission affects neither side of the trial balance, so the two totals still agree even though the books are incomplete. One-sided postings, casting errors and wrong account balances disturb the equality of debits and credits.

Question 8Fundamentals and Theoretical Framework of Accounting

The primary purpose of issuing Accounting Standards is to:

  1. Guarantee that every business earns a profit
  2. Fix the selling price of goods produced by a business
  3. Remove the need for maintaining a trial balance
  4. Bring uniformity and comparability into financial statements Correct answer.

Explanation

Accounting Standards prescribe recognition, measurement and disclosure rules so that financial statements of different entities and periods can be understood and compared. They standardise accounting treatment; they do not fix prices, guarantee profits or replace the trial balance.

Question 9Fundamentals and Theoretical Framework of Accounting

A firm buys a machine for ₹4,00,000 and pays ₹18,000 as freight and ₹12,000 as installation wages. The amount to be debited to the Machinery Account is:

  1. ₹4,30,000 Correct answer.
  2. ₹4,18,000
  3. ₹4,00,000
  4. ₹4,12,000

Explanation

Capital expenditure includes the purchase price and all costs necessary to bring the asset to a working condition, including freight and installation wages. The Machinery Account is therefore debited with ₹4,00,000 + ₹18,000 + ₹12,000 = ₹4,30,000.

Question 10Fundamentals and Theoretical Framework of Accounting

On 1 December, a firm receives ₹72,000 from a client for services to be rendered equally over the six months beginning 1 January. If the firm records revenue on the cash basis instead of the accrual basis, the profit for December will be:

  1. Overstated by ₹12,000
  2. Understated by ₹72,000
  3. Unaffected
  4. Overstated by ₹72,000 Correct answer.

Explanation

Under the cash basis, the entire ₹72,000 received in December is treated as revenue even though no service has yet been rendered. Under the accrual basis, no revenue is recognised in December, so cash-basis profit is higher by ₹72,000.

Question 11Fundamentals and Theoretical Framework of Accounting

A company's workforce is highly skilled and has completed advanced training. Under the money measurement concept, this fact is normally omitted from the financial statements because:

  1. the company does not legally own its skilled employees
  2. their skill cannot be measured reliably in money terms Correct answer.
  3. all staff training expenditure must be written off in the year incurred
  4. employees' skills are treated as a long-term liability of the firm

Explanation

The money measurement concept permits accounting only those events that can be expressed in monetary units with reasonable objectivity. A skilled workforce certainly has value, but it is not recorded as an asset because a reliable monetary measure cannot be assigned to it. The concept is about measurability, not legal ownership.

Question 12Fundamentals and Theoretical Framework of Accounting

A trader purchases furniture for ₹40,000, paying by cheque. Applying the dual aspect concept, the effect on the accounting equation is:

  1. furniture rises by ₹40,000 and liabilities rise by ₹40,000
  2. furniture rises by ₹40,000 and bank falls by ₹40,000 Correct answer.
  3. total assets rise by ₹40,000 and capital rises by ₹40,000
  4. total assets fall by ₹40,000 and liabilities fall by ₹40,000

Explanation

Under dual aspect, every transaction has two effects of equal amount. Buying furniture by cheque increases the furniture asset and decreases the bank asset by ₹40,000, so total assets and total equities remain unchanged. No capital or liability is created because the payment is immediate.

Question 13Fundamentals and Theoretical Framework of Accounting

Which of the following payments made by a trader is a capital expenditure?

  1. Cost of painting the office every year
  2. Annual fire insurance premium on the factory building
  3. Registration fees for the title of land just purchased Correct answer.
  4. Monthly wages paid to workers assembling goods

Explanation

Capital expenditure creates or acquires a long-term asset, or increases its earning capacity. Registration fees are directly necessary to acquire legal title to the land, so they form part of the land's cost. Insurance, wages and painting are recurring revenue expenses.

Question 14Fundamentals and Theoretical Framework of Accounting

A firm's March salary bill of ₹24,000 remains unpaid on 31 March, though the employees have worked during March. Under the accrual basis, the year-end treatment is to:

  1. treat the unpaid salary as a prepaid expense carried forward
  2. debit salaries ₹24,000 and credit outstanding salaries ₹24,000 Correct answer.
  3. wait until the salary is actually paid in April before making any entry
  4. reduce the proprietor's capital by ₹24,000 without recognising an expense

Explanation

The accrual basis records income and expenses in the period to which they relate, not merely when cash moves. March salaries have been earned by employees and are unpaid at year end, so salary expense is matched to the year and an outstanding salary liability is recorded. The later cash payment will clear the liability.

Question 15Fundamentals and Theoretical Framework of Accounting

A firm buys a waste-paper basket costing ₹900 that is expected to last five years, but immediately charges it to the stationery expense account. This treatment is best justified by the:

  1. money measurement concept
  2. going concern concept
  3. realisation concept
  4. materiality concept Correct answer.

Explanation

Materiality allows a firm to depart from strict theoretical treatment for items so small that they cannot affect users' decisions. A ₹900 basket is not worth depreciating over five years, so charging it to stationery expense is acceptable. The amount is immaterial, not a change in the realisation or going concern assumptions.

Question 16Fundamentals and Theoretical Framework of Accounting

According to the qualitative characteristics of useful accounting information, information is relevant when it:

  1. is free from every possible error and bias
  2. can influence the economic decisions of users Correct answer.
  3. is available after the annual accounts are audited
  4. is expressed only in the local currency

Explanation

Relevance means the information can make a difference to users' economic decisions by helping them evaluate past or future events or confirm prior evaluations. Freedom from error and bias relates to faithful representation. Currency and audit timing do not by themselves make information relevant.

Question 17Fundamentals and Theoretical Framework of Accounting

Which statement correctly describes a trial balance prepared from the ledger?

  1. It records only those transactions that affect cash and bank balances
  2. It is a statutory financial statement that shows the profit earned during the year
  3. It lists debit and credit balances to check arithmetical accuracy Correct answer.
  4. It is a ledger account in which year-end closing entries are recorded

Explanation

A trial balance is a statement listing ledger balances in debit and credit columns to check that total debits equal total credits. It is not an account, not a financial statement, and not a cash book. Agreement gives arithmetical assurance but does not prove that no errors were made.

Question 18Fundamentals and Theoretical Framework of Accounting

In India, the Accounting Standards Board (ASB), which formulates Accounting Standards, operates under the authority of the:

  1. Reserve Bank of India (RBI)
  2. Securities and Exchange Board of India (SEBI)
  3. Ministry of Corporate Affairs (MCA)
  4. Institute of Chartered Accountants of India (ICAI) Correct answer.

Explanation

The Accounting Standards Board is a committee of the Institute of Chartered Accountants of India and formulates Accounting Standards. SEBI and RBI issue sector-specific regulations, while MCA notifies standards for companies but does not itself operate the ASB. Hence the ASB functions under ICAI.

Question 19Fundamentals and Theoretical Framework of Accounting

A firm receives a customer's order for ₹2,00,000 in March, dispatches the goods in April, and receives payment in May. Under the realisation concept, revenue from the sale is recognised in:

  1. March or May, because the firm may choose either the order date or the cash date
  2. April, when the goods were dispatched and risks transferred Correct answer.
  3. May, because revenue should be recognised only when the cash is actually received
  4. March, because the customer's order creates a legally enforceable right to receive payment

Explanation

Under the realisation concept, revenue from a sale of goods is recognised when the seller transfers the significant risks and rewards of ownership, usually on dispatch or delivery. The order date and the cash receipt date are not the recognition points. Thus revenue belongs to April.

Question 20Fundamentals and Theoretical Framework of Accounting

At year end, a firm faces a lawsuit that may result in a liability, but the amount cannot be measured reliably. Under accounting principles, the firm should:

  1. recognise a provision equal to the maximum possible claim
  2. recognise a provision equal to half the claim as a prudent estimate
  3. make no provision but disclose the contingent liability in the notes Correct answer.
  4. ignore the lawsuit completely until the court gives its verdict

Explanation

A provision is recognised only when a present obligation exists, an outflow is probable, and the amount can be estimated reliably. If the amount cannot be measured reliably, the item is a contingent liability that is disclosed in the notes. Ignoring it or creating an arbitrary provision is not acceptable.

Question 21Fundamentals and Theoretical Framework of Accounting

Which of the following is an internal user of a company's accounting information?

  1. The company's production manager Correct answer.
  2. The income tax authority
  3. A lending bank
  4. A trade supplier

Explanation

Internal users are the managers and employees who run the business and need accounting data for planning, control and decision-making. The company's production manager is such a user. Lenders, suppliers and tax authorities rely on the financial statements from outside the entity and are therefore external users.

Question 22Fundamentals and Theoretical Framework of Accounting

A trader records a sale in the year in which cash is received rather than in the year in which the goods are delivered. Which accounting concept is being violated?

  1. Money measurement concept
  2. Business entity concept
  3. Cost concept
  4. Accrual concept Correct answer.

Explanation

The accrual concept requires revenue to be recognised when it is earned, that is, when goods or services are transferred, and expenses when they are incurred, irrespective of when cash moves. Recording a sale only on cash receipt is the cash basis and therefore violates accrual. The other concepts listed deal with the separate entity, historical cost and monetary measurement.

Question 23Fundamentals and Theoretical Framework of Accounting

Which of the following is an enhancing qualitative characteristic of useful financial information?

  1. Timeliness Correct answer.
  2. Relevance
  3. Faithful representation
  4. Prudence

Explanation

The enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability, and they increase the usefulness of information that is already relevant and faithfully represented. Relevance and faithful representation are the two fundamental characteristics. Prudence is not a separate characteristic but supports neutrality.

Question 24Fundamentals and Theoretical Framework of Accounting

A building bought for ₹40,00,000 has a current market value of ₹75,00,000. No revaluation has been carried out. Under the cost concept, which of the following is correct?

  1. ₹40,00,000 less depreciation, with the appreciation ignored Correct answer.
  2. ₹75,00,000, with the ₹35,00,000 appreciation credited to profit
  3. ₹75,00,000 less depreciation, with the gain credited to a revaluation reserve
  4. ₹40,00,000 plus a revaluation surplus of ₹35,00,000

Explanation

Under the cost concept, assets are recorded at the amount paid to acquire them and are not restated for subsequent changes in market value. Depreciation is charged on that historical cost. Appreciation is recognised only when the asset is sold or when a formal revaluation policy is applied, which is not the case here.

Question 25Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A trader sells goods costing ₹10,000 to Ram on credit at a profit of 20% on cost. Which journal entry records this transaction?

  1. Purchases A/c Dr. ₹12,000; To Ram's A/c ₹12,000
  2. Ram's A/c Dr. ₹12,000; To Sales A/c ₹12,000 Correct answer.
  3. Sales A/c Dr. ₹12,000; To Ram's A/c ₹12,000
  4. Ram's A/c Dr. ₹10,000; To Purchases A/c ₹10,000

Explanation

The selling price is ₹10,000 plus 20% of ₹10,000, that is ₹12,000. Ram becomes a debtor, so his account is debited, and the sale increases income, so the Sales account is credited. The journal entry therefore debits the receiver and credits the giver.

Question 26Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which of the following transactions is entered in the purchases book?

  1. Goods purchased on credit from Mohan ₹8,000 Correct answer.
  2. Goods purchased for cash ₹8,000
  3. Furniture purchased on credit from Mohan ₹8,000
  4. Goods returned to Mohan ₹800

Explanation

The purchases book records only credit purchases of goods in which the firm deals. Cash purchases go to the cash book, asset purchases go to the journal proper, and returns outward go to the purchases returns book.

Question 27Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

What is the primary purpose of preparing a trial balance?

  1. To determine the amount of cash available on a particular date
  2. To record transactions in chronological order
  3. To check the arithmetical accuracy of ledger accounts Correct answer.
  4. To ascertain the profit or loss of the business

Explanation

A trial balance lists the debit and credit balances of ledger accounts to test whether total debits equal total credits. Agreement gives reasonable assurance that posting and balancing are arithmetically correct, though it does not prove profitability.

Question 28Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A firm deposits ₹15,000 cash into its bank account. How is this recorded in the cash book?

  1. Cash column, debit side, and no entry in bank column
  2. Bank column, credit side, and no entry in cash column
  3. Cash column, credit side, and bank column, debit side Correct answer.
  4. Cash column, credit side, and bank column also on credit side

Explanation

A deposit of cash into the bank is a contra entry because it affects two accounts within the cash book. Cash decreases, so the cash column is credited, and the bank balance increases, so the bank column is debited.

Question 29Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Goods sold to a customer are returned by him. In which subsidiary book is this return recorded?

  1. Journal proper
  2. Sales book
  3. Purchases returns book
  4. Sales returns book Correct answer.

Explanation

Goods returned by a customer are recorded in the sales returns book, also called the returns inward book. The customer's account is credited and the sales returns account is debited.

Question 30Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which statement about posting from the journal to the ledger is correct?

  1. Only the debit part of a journal entry is posted to the ledger
  2. The account debited in the journal is debited in the ledger Correct answer.
  3. Posting is done before the transaction is journalised
  4. An account debited in the journal is credited in the ledger

Explanation

Posting carries the debit and credit of each journal entry to the same sides of the respective ledger accounts. Thus an account shown as debtor in the journal is also debited in the ledger.

Question 31Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which error will remain undetected even when the trial balance agrees?

  1. A sales entry of ₹900 recorded only in the sales book
  2. Machinery bought for ₹50,000 debited to Purchases Correct answer.
  3. An amount of ₹500 posted as ₹50 to the correct side
  4. The debit total of the trial balance added ₹1,000 short

Explanation

An error of principle occurs when capital expenditure is treated as revenue expenditure, as when machinery is debited to Purchases. Because equal debit and credit amounts are still posted, the trial balance totals agree and the error stays hidden.

Question 32Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Under the imprest system of petty cash, what happens when the petty cashier is reimbursed?

  1. The imprest amount is restored to its original level Correct answer.
  2. The main cashier reduces the imprest permanently
  3. The petty cashier keeps the spent amount as income
  4. The petty cashier records the reimbursement as a receipt in the cash book

Explanation

Under the imprest system the petty cashier starts with a fixed float. After spending, the petty cashier presents the vouchers and receives cash equal to the amount spent, so the float returns to the original imprest.

Question 33Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A firm buys machinery on credit from Bharat Enterprises. Where should this transaction be recorded?

  1. Journal proper Correct answer.
  2. Sales book
  3. Cash book
  4. Purchases book

Explanation

The purchases book is meant only for credit purchases of goods meant for resale. Machinery is a fixed asset, so a credit purchase of machinery is recorded in the journal proper with a debit to Machinery and a credit to the supplier.

Question 34Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Goods worth ₹5,000 sold to Asha were posted to Asha's account as ₹500. The sales account was correctly credited with ₹5,000. What is the balance of the suspense account required to agree the trial balance?

  1. ₹4,500 debit
  2. ₹500 debit
  3. ₹4,500 credit Correct answer.
  4. ₹5,000 credit

Explanation

The debit to Asha's account is short by ₹4,500 (₹5,000 − ₹500), while the credit to Sales is correct. Total debits are therefore ₹4,500 less than total credits, and a suspense account with a credit balance of ₹4,500 is needed to agree the trial balance.

Question 35Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

In a journal entry, what is the narration written below the debit and credit lines?

  1. The page number of the ledger account affected
  2. The date on which the entry is posted to the ledger
  3. The amount by which the entry is posted
  4. A brief explanation of the reason for the entry Correct answer.

Explanation

A narration is a short description written below the debit and credit lines of a journal entry. It explains the nature and purpose of the transaction so that the entry can be understood later without referring to source documents.

Question 36Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which of the following accounts is a real account for the purpose of the debit and credit rules?

  1. Rent account
  2. Capital account
  3. Sales account
  4. Cash account Correct answer.

Explanation

Real accounts relate to assets and properties, and the rule is to debit what comes in and credit what goes out. Cash is an asset, so the cash account is a real account, while sales and rent are nominal accounts and capital is a personal account.

Question 37Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

While preparing a trial balance, which of the following balances is entered in the credit column?

  1. Discount received Correct answer.
  2. Sales returns
  3. Wages paid
  4. Machinery

Explanation

Discount received is an income, so it carries a credit balance and appears in the credit column of the trial balance. Sales returns, machinery and wages paid all carry debit balances.

Question 38Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A firm buys furniture for ₹20,000, paying ₹5,000 by cheque and the balance in cash. Which journal entry records this transaction?

  1. Furniture A/c Dr ₹20,000; To Bank A/c ₹5,000; To Cash A/c ₹15,000 Correct answer.
  2. Bank A/c Dr ₹5,000; Cash A/c Dr ₹15,000; To Furniture A/c ₹20,000 (being furniture purchased)
  3. Furniture A/c Dr ₹5,000; To Bank A/c ₹5,000
  4. Furniture A/c Dr ₹20,000; To Bank A/c ₹20,000

Explanation

The furniture account is debited with the full cost of ₹20,000 because an asset has come into the business. The two payments are credited separately, bank with ₹5,000 and cash with ₹15,000, so the entry remains in balance.

Question 39Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which of the following transactions is entered in the sales book?

  1. Credit sale of old office furniture
  2. Credit sale of goods to a customer Correct answer.
  3. Cash sale of goods to a customer
  4. Goods returned by a customer

Explanation

The sales book records only credit sales of goods in which the trader deals. Cash sales go to the cash book, a sale of old furniture is not a sale of goods and goes to the journal proper, and returns are entered in the sales returns book.

Question 40Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

The total of the sales book for a month is posted to the sales account. On which side of the sales account is it posted and why?

  1. Debit side, because sales are an expense
  2. Credit side, because sales returns reduce sales
  3. Credit side, because sales increase income Correct answer.
  4. Debit side, because the sales book total is a payment

Explanation

Sales is a revenue account that increases the owner's equity, so it is credited. The periodic total of the sales book is therefore posted to the credit side of the sales account, not to individual customers' accounts.

Question 41Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Which of the following is recorded in the journal proper rather than in a special subsidiary book?

  1. Credit sale of goods to a regular customer
  2. Cash received from a customer
  3. Credit purchase of goods for resale
  4. Year-end adjustment for outstanding wages Correct answer.

Explanation

The journal proper is used for transactions that do not fit any special subsidiary book, such as adjustment, opening, closing and rectification entries. Credit purchases of goods go to the purchases book and credit sales to the sales book.

Question 42Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A trader receives a cheque of ₹12,000 from a customer and deposits it in the bank on the same day. In a three-column cash book, how is this recorded?

  1. Bank column, debit side Correct answer.
  2. Cash column, debit side
  3. Bank column, credit side
  4. Both cash and bank columns, debit side

Explanation

A cheque received is a receipt through the bank, so the bank column is debited in the cash book. The cash column is not affected because no currency passes through the cash box.

Question 43Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A purchase of goods for ₹6,000 was entered in the purchases book as ₹600, while the supplier's account was correctly credited with ₹6,000. What is the effect on the trial balance?

  1. Credit total exceeds debit total by ₹600
  2. Debit total exceeds credit total by ₹5,400
  3. Credit total exceeds debit total by ₹5,400 Correct answer.
  4. The trial balance agrees because the supplier's account is correct

Explanation

The purchases account was debited with only ₹600 instead of ₹6,000, so the debit total is short by ₹5,400. Since the supplier's account was correctly credited, the credit total exceeds the debit total by ₹5,400 and the difference is placed in a suspense account.

Question 44Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

The purchases book total of ₹48,000 was posted to the debit of the purchases account as ₹84,000. Which journal entry rectifies this error?

  1. Purchases A/c Dr ₹84,000; To Suspense A/c ₹84,000
  2. Purchases A/c Dr ₹36,000; To Suspense A/c ₹36,000
  3. Suspense A/c Dr ₹36,000; To Purchases A/c ₹36,000 Correct answer.
  4. Suspense A/c Dr ₹48,000; To Purchases A/c ₹48,000

Explanation

The purchases account has been debited with ₹84,000 instead of ₹48,000, an excess debit of ₹36,000. To rectify it, the purchases account must be credited with ₹36,000 and the suspense account debited with the same amount.

Question 45Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

At the end of the month, the total of the purchases book is ₹62,000. How is this total posted to the ledger?

  1. Credit the Purchases Account with ₹62,000
  2. Debit the Purchases Account with ₹62,000 Correct answer.
  3. Credit the Cash Account with ₹62,000
  4. Debit each supplier's account with ₹62,000

Explanation

Only the total of the purchases book is posted to the Purchases Account at the month end. It is debited because purchases increase the debit balance of that account. Individual supplier accounts are credited when each transaction is posted, not by means of the monthly total.

Question 46Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A customer returns goods worth ₹1,500, and the return is entered in the sales return book. How is the customer's account affected when the entry is posted?

  1. Left unchanged because the sales return book is a subsidiary book
  2. Credited with ₹1,500 in the sales return account
  3. Credited with ₹1,500 in the customer's account Correct answer.
  4. Debited with ₹1,500 in the customer's account

Explanation

Sales returns reduce the amount owed by the customer. The customer's account is therefore credited, while the Sales Return Account is debited. Posting must be made even though the transaction is first recorded in a subsidiary book.

Question 47Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

The proprietor withdraws ₹8,000 from the bank for office use and records it in a three-column cash book. Which contra entry is made?

  1. Bank column debit ₹8,000; cash column credit ₹8,000
  2. No entry, because it is a transfer within the business
  3. Cash column debit ₹8,000; bank column credit ₹8,000 Correct answer.
  4. Cash column debit ₹8,000; cash column credit ₹8,000

Explanation

Withdrawal of cash from the bank for office use is a contra entry. Cash in hand increases, so the cash column is debited, and the bank balance decreases, so the bank column is credited. The entry is marked with a C to show that it is a contra entry.

Question 48Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A trial balance shows debit total ₹1,18,600 and credit total ₹1,17,900. If the difference is placed in a suspense account, what is the suspense account balance?

  1. ₹1,500 credit balance
  2. ₹700 credit balance Correct answer.
  3. ₹1,500 debit balance
  4. ₹700 debit balance

Explanation

The debit total exceeds the credit total by ₹700. To make the trial balance agree, a suspense account with a credit balance of ₹700 is opened. A debit-heavy trial balance is balanced by a credit in the suspense account.

Question 49Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

Ram, a customer owing ₹6,000, becomes insolvent and the amount is written off as bad. Which journal entry records this?

  1. Bad Debts A/c Dr ₹6,000; Cash A/c Cr ₹6,000
  2. Bad Debts A/c Dr ₹6,000; Ram's A/c Cr ₹6,000 Correct answer.
  3. Cash A/c Dr ₹6,000; Bad Debts A/c Cr ₹6,000
  4. Ram's A/c Dr ₹6,000; Bad Debts A/c Cr ₹6,000

Explanation

Writing off a bad debt records an expense and removes the receivable from the customer's account. Bad Debts Account is debited and the customer's account is credited. No cash is received, so Cash Account is not involved.

Question 50Accounting Process: Journal, Ledger, Subsidiary Books and Trial Balance

A firm returns defective goods to a supplier and issues a debit note. In which subsidiary book is this transaction recorded?

  1. Sales return book
  2. Journal proper
  3. Purchase return book Correct answer.
  4. Purchases book

Explanation

Goods returned to a supplier are returns outward and are recorded in the purchase return book on the basis of a debit note. The purchases book records credit purchases of goods, not returns to suppliers.